Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Pylon II Capital Ltd.

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Pylon II Capital Ltd. – At a glance:

  • Issuer: Pylon II Capital Ltd.
  • Cedent / sponsor: EDF (via Natixis)
  • Placement / structuring agent/s: Natixis are risk transfer counterparty, sole arranger, collateral counterparty and joint bookrunner. Swiss Re were also joint bookrunner
  • Risk modelling / calculation agents etc: EQECAT
  • Risks / perils covered: European windstorm
  • Size: $216m
  • Trigger type: Parametric index
  • Ratings: S&P: Class A - 'B+', Class B - 'B-'
  • Date of issue: Aug 2011
  • news coverage: Articles discussing Pylon II Capital Ltd. from

Pylon II Capital Ltd. – Full details:

This transaction is being issued through Irish special purpose vehicle Pylon II Capital Ltd. The transaction secures €150m of European windstorm coverage for mainland France on a per-occurrence basis over the risk period. Covered areas are the whole of France excluding Corsica and any overseas territories. Two tranches are being issued, €65m of Class A notes and €85m of Class B notes. Maturity is scheduled for the end of April 2016 making this a longer duration deal compared to most cat bonds. That length of deal must be attractive to EDF as they secure a layer of reinsurance cover for five full European windstorm seasons.

The risk transfer counterparty in the transaction is French bank Natixis. Natixis in turn enter into separate financial contracts with EDF subsidiary Electricite Reseau Distribution France (ERDF). Natixis are also arranging this deal.

The transaction will utilise parametric triggers with EQECAT acting as calculation and reset agent and data being used from the reporting agent METNEXT’s (a subsidiary of Meteo-France) network of wind speed monitoring stations. EQECAT will calculate an index value following any qualifying events based on the wind speeds measured and on predetermined weights by location.

The notes provide protection above an index value of 777 (for Class A) and 420 (for Class B), up to an index value of 1,050 (class A) and 777 (class B) on a per-occurrence basis. The Class A notes have a drop-down feature which is activated if the Class B notes suffer a partial or total loss of principal, the Class A notes attachment and exhaustion points will be lowered to ensure that there is no gap in cover afforded. This also allows the Class A notes to provide cover from the attachment point of 420 should the Class B notes suffer a total loss. Standard & Poor’s note that this could have happened in 1999 with windstorms Lothar and Martin. Should the Class A notes drop-down they will be reassessed by rating agency S&P and if neccessary they will ammend the Class A notes ratings to reflect an increased probability of attachment.

Proceeds from the sale of the €150m (US$216m) notes will be invested in a global master repurchase agreement (tri-party repo) with Natixis as the counterparty.

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